BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1456|
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UNFINISHED BUSINESS
Bill No: SB 1456
Author: Galgiani (D)
Amended: 8/18/16
Vote: 21
SENATE ENVIRONMENTAL QUALITY COMMITTEE: 7-0, 4/20/16
AYES: Wieckowski, Gaines, Bates, Hill, Jackson, Leno, Pavley
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/27/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen
SENATE FLOOR: 38-0, 5/31/16
AYES: Allen, Anderson, Bates, Beall, Berryhill, Block,
Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall,
Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson,
Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning,
Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Stone,
Vidak, Wolk
NO VOTE RECORDED: Runner, Wieckowski
ASSEMBLY FLOOR: 80-0, 8/23/16 - See last page for vote
SUBJECT: Safe Drinking Water State Revolving Fund Law of
1997: water systems: financing
SOURCE: California Water Association
DIGEST: This bill allows costs incurred by a community water
system or not-for-profit noncommunity water system for planning
and preliminary engineering studies, project design, and
construction to be funded under the Safe Drinking Water State
Revolving Fund (SDWSRF).
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Assembly Amendments authorize a grant or principal forgiveness
to a community water system or not-for-profit noncommunity water
system that serves a disadvantaged community and limits the
principal forgiveness to capital improvements made by the water
system serving disadvantaged communities with fewer than 3,300
service connections.
ANALYSIS:
Existing law:
1)Requires, under the California Safe Drinking Water Act (SDWA),
the State Water Resources Control Board (SWRCB) to regulate
drinking water and enforce the federal Safe Drinking Water Act
and other regulations.
2)Establishes SDWSRF, and moneys in the fund are continuously
appropriated to SWRCB for the provision of grants and
revolving fund loans to provide for the design and
construction of projects for public water systems that will
enable suppliers to meet safe drinking water standards.
a) For community public water systems and not-for-profit
noncommunity public water systems, allows planning and
preliminary engineering studies, project design, and
construction costs incurred by those public water systems
to be funded by loans and other repayable financing.
b) Additionally allows, if those public water systems are
owned by public agencies or not-for-profit water companies,
those specified costs to be funded by grants, principal
forgiveness, or a combination of grants and loans or other
financial assistance.
c) Deems a public agency or private not-for-profit water
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company serving a severely disadvantaged community with
fewer than 200 service connections and that owns a small
community water system or nontransient community water
system to have no ability to repay any financing for a
project serving the severely disadvantaged community.
3)Requires the California Public Utilities Commission (CPUC) to
establish rates for investor-owned utilities water service
providers.
This bill:
1)Authorizes the above-described capital and design costs to be
funded by loans or other repayable financing, grants,
principal forgiveness, or a combination of grants and loans or
other financial assistance, regardless of whether the water
system is a community public water system, a not-for-profit
noncommunity public water system, or is owned by a public
agency or private not-for-profit investor-owned utility water
service provider. By expanding the use of moneys in a
continuously appropriated fund, this bill will make an
appropriation.
2)Specifies that any public water system serving a severely
disadvantaged community with fewer than 3,300 service
connections does not have the ability to repay any financing
for a project serving the severely disadvantaged community.
Background
1)SDWSRF. Congress established the SDWSRF as part of the 1996
Safe Drinking Water Act amendments to better enable public
water systems to comply with national primary drinking water
standards and to protect public health. The SDWSRF provides
financial assistance in the form of capitalization grants to
states to provide low-interest loans and other assistance to
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public water systems.
In order to receive these funds, states must provide a state
match equal to 20% of the federal capitalization grants and
must create a drinking water state revolving fund program for
public water system infrastructure needs and other drinking
water-related activities. In response, California
established the SDWSRF through SB 1307 (Costa, Chapter 734,
Statutes of 1997) to help fund the state's drinking water
needs.
SDWSRF provides low-interest preconstruction and construction
loans or grants to drinking water systems. These loans or
grants cover capital improvements that increase public health
and compliance with drinking water regulations.
Financial incentives including reduced interest rates,
extended financing terms, principal forgiveness and grants
targeted toward small disadvantaged communities with
financial hardship.
SWRCB division of drinking water evaluates financial hardship
and ability to repay based on affordability criteria
including population, median household income, and rates as a
percent of median household income.
2)What are investor-owned water utilities? Investor-owned water
companies are water service providers that own regulated water
and wastewater utilities, partner with municipalities to form
public-private partnerships, or operate and maintain water and
wastewater systems as contracted services providers. These
companies may be privately owned or publicly traded.
In California, these water service providers who own and
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operate utilities are regulated by CPUC. CPUC establishes
rates and terms of service. In setting rates, CPUC reviews
the company's costs, audits system needs, conducts public
hearings for customers, holds formal evidentiary hearings
adjudicated by administrative law judges, and issues a final
decision authorizing the utility to establish approved rates
and terms of service.
Rates are set to collect an authorized revenue requirement to
compensate for just and reasonable expenses for operating and
maintaining a water system and costs related to capital
expenditure, including an authorized rate of return on the
underappreciated capital investment (rate base), depreciation
expense, property and income taxes.
There are 108 investor-owned water utilities under the CPUC's
jurisdiction providing water service to about 16% of
California's residents. Approximately 95% of that total is
served by nine large water utilities each serving more than
10,000 connections. Annual water and wastewater revenues
under the CPUC's regulation total $1.4 billion.
CPUC regulates 70 Class D water utilities that have less than
500 connections. Of these 70, 55 have less than 200 service
connections. There are also eight districts of Class A and B
multi-district utilities that have less than 200 connections.
CPUC's regulation of water utilities does not consider
whether or not the utility is serving severely disadvantaged
communities. As such, CPUC does not maintain information to
know if any of the 55 Class D water utilities or the eight
districts of the Class A and B multi-district utilities serve
severely disadvantaged communities.
The after-tax authorized rate of return on a utility's rate
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base is between 10.2% and 11.2% for Class D water utilities.
Comments
Need for the bill: According to the author, water utilities
regulated by the CPUC are eligible for water-related state and
federal funding programs, like the Prop.1 Water Bond, as long as
the funding is used for projects to benefit their customers.
CPUC-regulated water utilities are eligible for loans from the
SDWSRF. This program, under SWRCB, assists water systems in
financing the cost of drinking water infrastructure projects
needed to achieve or maintain compliance with SDWA requirements.
CPUC-regulated water utilities are not eligible for loan
forgiveness under this statute. SB 1456 expands the eligibility
for loan forgiveness for capital improvements to all water
systems serving severely disadvantaged communities with fewer
than 200 service connections.
FISCAL EFFECT: Appropriation: Yes Fiscal
Com.:YesLocal: No
According to the Assembly Appropriations Committee:
1)Unknown, potentially significant, cost pressures on the SDWSRF
resulting from eligibility for grants and loan forgiveness for
an increased number of water systems.
2)Minor, absorbable SWRCB.
SUPPORT: (Unable to verify at time of writing)
California Water Association (source)
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OPPOSITION: (Unable to verify at time of writing)
None received
ASSEMBLY FLOOR: 80-0, 8/23/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,
Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth
Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,
Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper,
Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim,
Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis,
Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte,
O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez,
Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting,
Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon
Prepared by:Rachel Machi Wagoner / E.Q. / (916) 651-4108
8/23/16 20:26:30
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